Gambling Stock Roundup: Penn National, Pinnacle Entertainment, Monarch Casino Post Sluggish Results

Last week, Penn National Gaming Inc. PENN posted mixed second-quarter 2014 results with earnings per share missing the Zacks Consensus Estimate while revenues beating marginally. Meanwhile, Pinnacle Entertainment Inc. PNK and Monarch Casino & Resort Inc. MCRI missed the estimates both on top and bottom lines. Share price of these companies fell after the announcement of their respective results.

Further, Caesars Entertainment Corporation CZR has received approval from Illinois casino regulators for a $1.75 billion refinancing. Meanwhile, MGM Resorts International MGM has also received approval to build a MGM Resorts casino and hotel worth $925.0 million at the National Harbor complex. (Read last to last week's developments: Gambling Stock Round up for Jul 21, 2014).

Recap of the Week's Important Stories:

1.    Penn National Gaming posted mixed second quarter 2014 results with adjusted earnings of 5 cents missing the Zacks Consensus Estimate of 7 cents by 25.6%. However, it was above management's expectation of 4 cents. Net revenues of $652.1 million surpassed beat the consensus mark of $652.0 million by 0.5% and also exceeded management's expectation of $640.5 million. However, it declined 14.3% year over year due to a decline in revenues at East/Midwest and Southern Plains segments.

The company expects earnings per share and revenue of 6 cents and $633.5 million, respectively, in the third quarter of 2014. The company lowered its earnings guidance for 2014. It expects earnings of 2 cents compared to its previous expectation of 12 cents. However, it increased its revenue expectation to $2.55 billion compared to the previous expectation of $2.51 billion.

2.    Pinnacle Entertainment posted lower- than expected second quarter results with adjusted earnings of 37 cents per share that missed the Zacks Consensus Estimate of 48 cents, by 23.0%. However, earnings increased significantly year over year, on higher year-over-year revenues.

Net revenues of $555.2 million significantly went up year over year, owing to on the back of higher gaming, food and beverage and lodging revenues. However, it declined 2.6% on a yearly basis when compared on a retrospective basis (including Ameristar properties in the prior year period). The company had acquired Ameristar properties in Aug 2013. Net revenues of $555.2 million, missed the consensus mark by 0.9%.

In one other development, Orange Capital, beneficial owner of approximately 4.4% of Pinnacle Entertainment's common stock, issued a statement related to a letter sent by the former to the latter. Orange Capital had outlined a PropCo Transaction in the letter with a target effective date of May 31, 2015. It would like Pinnacle Entertainment to separate its owned real estate into an independent publicly listed real estate investment trust (“REIT” or “PropCo”), which would be distributed to shareholders via a tax-free spin-off.

Orange Capital indicated that despite the successful Ameristar acquisition, Pinnacle Entertainment is valued at a significant discount to other casino operators like Penn National Gaming as well as its spun-off company Gaming & Leisure Properties, Inc. It believes that the transaction would boost Pinnacle's price by 60.0% to 90.0%.

The 4.4% beneficial owner also indicated that it is not satisfied with the company's response and is seeking for a response from the company.

3.    Monarch Casino & Resort posted disappointing second quarter results with earnings of 18 cents that missed missing the Zacks Consensus Estimate of 32 cents per share by 43.8% and declined declining 51.4% year over year. The downside reflects lower decline in revenues and higher operating expenses. Net revenue of $47.8 million also missed the consensus mark of $49.0 million by 2.4% and declined 3.7% declined year over year. The results reflect lower casino revenue at both Atlantis and Monarch Black Hawk.

4.    Reportedly, Caesars Entertainment has received approval from Illinois casino regulators for $1.75 billion refinancing. On Jun 27, 2014, the Illinois Gaming Board had delayed and blocked the decision for the approval for refinancing due to opposition from some bondholders. However, a group of debt holders have now convinced the Illinois Gaming Board today that Caesars was keeping the finances of Caesars Entertainment Operating Co. (CEOC), at risk by shifting casino assets to other subsidiaries in order to get rid of their the guarantee of their debt. Caesars is still burdened by debt from a $30.7 billion leveraged buyout in 2008 led by Apollo Global Management LLC and TPG Capital.

5.    In one other development, MGM Resorts has received approval from Prince George's County, MD to build a MGM Resorts casino and hotel at the National Harbor complex just outside of Washington, D.C. The casino worth $925.0 million is scheduled to open by Jul 2016. This permission paves the way for seeking further permits. Share price increased 2.8% in response.

Performance

After experiencing two consecutive weeks of share price decline, most of the leading casino operators landed up with a gain last week. MGM Resorts, Boyd Gaming Corporation BYD, Las Vegas Sands Corp. LVS and Wynn Resorts Ltd. posted gains of 3.7%, 2.3%, 1.3% and approximately 1.0%, respectively, after the State of Nevada Gaming Control Board reported June gambling revenues of $906.9 million, up 14.4% year over year. This also compared favorably with the growth of 8.1% for the month of May and a decline of 0.3% in April.

Melco Crown Entertainment Limited also gained while Caesars Entertainment and Caesars Acquisition Company were the losers this past week.

Over the last six months, Boyd Gaming experienced the highest gain of 10.3% followed by MGM Resorts and WYNN Resorts. However, all other stocks declined over the same time frame with Caesars Entertainment and Melco Crown declining the most – 20.7% and 15.2%, respectively.

What's Next in the Gambling World?

WYNN Resorts with an Earnings ESP of -2.9% and a Zacks Rank #3 (Hold) is set to release its second quarter 2014 results on Jul 29, 2014. Churchill Downs Inc. with an Earnings ESP of -8.9% and a Zacks Rank #4 (Sell) will also report second quarter results on Jul 30 while Boyd Gaming with an Earnings ESP of +14.3% and a Zacks Rank #4 is set to announce second-quarter results on Jul 31, 2014.

We note that gambling stocks have oscillated between gains and losses in recent sessions and investors can expect such movement in the coming days as well.

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